FYI--
Yesterday, Mark Hassenberg & Raymond Carpenter of DLJ initiated coverage of AFLX with a market perform at $17.25.
1998 E.P.S. estimate $1.39. P/E ratio 12.4
1999 E.P.S. estimate $1.78. P/E ratio 9.4
Q1 1998 E.P.S. estimate $0.28
Q2 1998 E.P.S. estimate $0.32
Q3 1998 E.P.S. estimate $0.39
Q4 1998 E.P.S. estimate $0.39
VIEWPOINT
We are initiating coverage of AFLX with a market perform rating and a 12-month price objective of $23, potential upside of 34.3% from current trading levels. Unfortunaely, the uncertainty of the company's earnings over the next 2 quarters keeps us from rating the company a buy at this time.
Mgmt has effectively executed it's growth strategy to become an integrated supplier of flexible circuits and assemblies,
offering its customers the one stop shopping that they want. AFLX participates in a reapidly expanding market with exceptional
long-term growth prospects; a business which should offer the company high returns on both revenues and assests. Its opportunities
shot AFLX shares into the $30's twice in the past 3 years; 2 unrelated issues caused the stock to fall back to the single digits
once and to the mid-teens today.
The first painful experience was the result of the unfortunate timing of an acquisition. Management correctely assumed that
combining their leading technology to design and manufacture flexible circuits with assembly would lead to important gains in market
share. Unfortunately, the company they acquired, based in Great Britian, lost 2 of its top 4 customers in a matter of months;
Hewlett Packard, which decided to exit the disk drive market and Quantum, which decided to source its disk drives from matsushita.
The misfortune of having 40-50% of the volume of an acquisition made in 1996 disappear within 6 months of purchase has been solved by a shift of production to a lower cost manufacturing facility in Thailand, with testing and approval of the facility by its key customers, such as IBM, Phillips and Seagate, accomplished in just 1 year.
The recent decline in AFLX shares is due to the problems currently faced by the Asian economies, which will prove to be a positive to the company long-term, giving it an important competitive advantage through production from its facilities in Thailand and investor's concerns regarding the company's exposure to the disk drive market. The issue is the uncertainty of earnings over the next few quarters.
Obviously, AFLX's difficulties are not our secret, its stock price has been almost cut in half and the company's shares are selling at 11.3x consensus estimates for 1998 - someone is questioning analyst's abilities to project earnings in the current environment. |
